A Company with an Investment in Equity Securities Hedges This

Multiple Choice

A company with an investment in equity securities hedges this position by investing in short futures on the stock. This hedging relationship will generally have some effect on income, even though the terms match exactly, because:

A) Hedge accounting is not allowed for hedges of equity investments.
B) Gains and losses on stock futures are valued at changes in futures rates while losses and gains on the stock are valued at changes in current market rates.
C) The value of the stock futures is not related to the market value of the stock.
D) Gains and losses on the stock are valued at changes in futures rates while losses and gains on stock futures are valued at changes in current market rates.